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Chapter 2 Chapter 2

Three ways of doing international business: Three ways of doing international business:

Foreign Direct Investment (FDI) Foreign Direct Investment (FDI)

Annual outflows of FDI Annual outflows of FDI

Annual inflows of FDI Annual inflows of FDI

Does trade lead to FDI? Does trade lead to FDI?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

Why enter foreign markets? Why enter foreign markets?

In turnkey projects, the contractor builds the plant, supply the technology, provides suppliers of In turnkey projects, the contractor builds the plant, supply the technology, provides suppliers of raw materials and other production inputs, train operating personnel, run the factory for some time and return the factory to the owner.

1) Wholly owned subsidiary a. Start by building a new plant b. Acquire a 1) Wholly owned subsidiary a. Start by building a new plant b. Acquire a going concern – mostly firms buy an already existing firm. This way it will have one less competitor and an established firm with customers, suppliers, permissions taken. c. Purchase a distribution firm

3) Licensing is a contractual arrangement in which one firm grants access to its 3) Licensing is a contractual arrangement in which one firm grants access to its patents, trade secrets, or technology for a fee.

4) Franchising is a form of licensing in which one firm contracts with another 4) Franchising is a form of licensing in which one firm contracts with another to operate a certain type of business under an established name according to specific rules.

5) Contract manufacturing is an arrangement in which one firm contracts with another to 5) Contract manufacturing is an arrangement in which one firm contracts with another to produce products to its specifications but assumes responsibility for marketing.

Strategic alliances can be established with customers, suppliers, competitors. Strategic alliances can be established with customers, suppliers, competitors.